My Family’s Money

Since the Pros are just like Joes when it comes to the problems they have with managing their money, maybe some of the things that their investment professionals suggest for them are the same types of things that will work for people like you and me. Here are three things that I’ve inferred from comments made by members of Horizon Wealth Management that seem to work for them in managing the portfolios of professional athletes:

Frontload wealth building – the average professional athlete is in sports for about 5 years so wealth preservation is a very important thing if athletes want to create lifelong financial security (source). Conservative investments that minimize risk while generating only modest returns can have the athlete earning thousands upon thousands of dollars a year. Simply earning a 2.75% return on investments will have an athlete who stashed away their signing bonus of $1.675 million earning over $50,000 a year in interest after 5 years. A 5% return would have them earning $100,000 a year over the same time period. That is a pretty significant amount considering that this is without adding any more money to the pot.

To the average person windfalls aren’t that common, but when they do come it is important that these funds be turned into income preservation rather than a new ORV with bullet holes the size of motza balls on the back hatch. A $15,000 windfall would turn into over $100,000 during the course of a 40-year work life if invested at the very beginning and returning 5% per year. Add to that number your normal retirement savings and retirement could come a lot sooner than you had expected. At that point it becomes a simple matter of discipline and forward thinking. (See My Dollar Plan “Reverse Strategy” for a better understanding of what front loading your retirement investing can do for you).

Think about finance in a way that makes sense to you. According to an American Way article the people over at Horizon think that educating their clients on basic investment terminology is important – duh! So important, in fact, they are willing to forgo the almost impenetrable financial jargon for communicating information in a way that is easily accessible to their clients. For many, that means drawing analogies between the world of finances and their sport. The difference between a three-pointer and a free throw might be the backdrop for a discussion about the strengths and weaknesses between investing in emerging market stocks and US government bonds. They might explain the difference by saying, “Emerging market stocks are like three pointers, they have a low chance of scoring but when they do they can worth a lot. Free throws, on the other hand, are more like a US government bonds, they both have a good chance of making it but they don’t return nearly as much.” It is almost always easier to think of things in a way that makes sense to you, so do it with your finances.

Keep goals front and center. You have to have clear goals to force yourself to save some money when it seems like you have a limitless supply. If I made millions of dollars a year I could totally imagine myself saying something like, “I should totally buy that island this year. I’ll just be sure to make up for it next year with my Gatorade contract.” Oh the sweet temptation of owning a tropical paradise! It may be even harder to keep goals and to save money when every penny counts though. It is hard to save when companies sell so many fine widgets that you simply must have or your child keeps begging for more food. Help yourself out by setting real goals and sticking to them. Push yourself, but know the balance between feeding your family now and feeding them later.

See, you probably have exactly what it takes to be just like a professional athlete when it come to managing money. Now if only you shoot like one …